Thursday, March 29, 2012

An executive asked me a terrific question today during a leadership development workshop. He inquired, "How do we keep young people engaged and intrinsically motivated while, at the same time, maintaining disciplined, standardized processes in the organization?" He worried that millenials working at the front lines (in distribution centers, for instance) will chafe at the notion of simply following standard processes.

Naturally, companies like this particular one can't simply ditch their standardized processes. However, they can provide plenty of opportunity for young people on the front lines to offer ideas for improving those processes. The key, however, is not to simply allow people to begin making ad hoc changes to those processes at every localized unit of the organization. Moreover, people don't want their ideas to simply get thrown into a suggestion box never to be heard from again. Companies need to find ways for people on the front lines to experiment with improvement ideas in a systematic way, and then they need to assess those experiments carefully. If the experiment goes well, they need to create a feedback loop, so that the idea doesn't just lead to change at the local level, but instead gets built into the standard processes across the organization. If young people get to experiment in this manner, they will be pleased that they are being given some potential to make a broader impact, while the company maintains needed process discipline.

Wednesday, March 28, 2012

Researchers Heidi Gardner and Lisa Kwan have conducted an interesting new study that explains why some teams do not perform effectively. Their research shows that what others think of you actually does matter. Specifically, your fellow team members' assessments of your ability have a significant effect on team performance overall. Why? The scholars studied the variance in team members' perceptions of each others' expertise. Low variance means the members have similar perceptions. High variance means the team members hold clashing perceptions of each others' expertise. The scholars describe the high variance condition as "expertise dissensus." They argue that expertise dissensus increases interpersonal conflict and decreases productive collaboration. As a result, the team members experience less satisfaction and cannot work together effectively over time.

Monday, March 26, 2012

The conglomerate that once groomed jack-of-all-trades generalists is now betting on deep industry experts instead. The
shift is a change in philosophy at a corporation that for decades had
made a rigorously applied but generic management tool kit central to its
identity. Like all companies, GE wants some of both traits in its
leaders, but the balance has tipped toward expertise.
For years, GE wanted its top managers to be
experts in managing. Now, it's increasingly looking for them to be deep
experts in their fields. Rather than purposely relocate its senior
leaders every few years to expose them to more of the company, GE now is
leaving them in their business units longer than it used to, in hopes
their deeper understanding of products and customers will help them win
sales.

Susan Peters, head of leadership development at GE, explains the need
for the change: "The world is so complex. We need people who are pretty
deep." Interestingly, this shift in philosophy has occurred as the firm continues to face critiques of its corporate strategy. As this article on Forbes.com suggests, GE may be trading at a conglomerate discount because of its complex unrelated diversification strategy. For years, GE remained an exception to the rule when it came to unrelated diversification. Its whole was worth more than the sum of the parts, in contrast to many conglomerates that have since broken up.

When a firm pursues a conglomerate strategy, it strives to achieve governance economies. Governance economies emerge when a firm shares management systems, processes, and talent across a variety of businesses. Most related diversified firms, such as Disney, strive for scope economies - i.e. synergies through the sharing of intellectual property, manufacturing plants, distribution channels, and the like. A conglomerate often does not have these types of synergies, so governance economies become critical to justifying the fact that so many seemingly unrelated businesses are being kept together. However, if GE isn't sharing management talent across the businesses as much any longer, then it seems as though governance economies will shrink. Of course, the units will still share many excellent systems and processes. Those processes can be a key source of governance economies. Will that be enough to convince investors that the parts are worth more together than apart? That will be the key question moving forward.

Friday, March 23, 2012

Ok, I'm frustrated with the cliche, "You learn more from your failures than your successes." Why? Well, for starters, it's not entirely true! You learn most effectively when you can COMPARE AND CONTRAST SUCCESS AND FAILURE! In so doing, you develop a much more accurate understanding of cause-effect relationships. Consider the research of Schmuel Ellis and Inbar Davidi, which I described in my last book. These researchers examined after-event reviews conducted by Israeli military forces. They compared soldiers who conducted post-event reflection exercises after successful and unsuccessful navigation exercises with soldiers who only reviewed failures. The scholars found that “contemplation of successful events stimulated the learners to generate more hypotheses about their performance.” The soldiers who systematically analyzed both successes and failures developed richer mental models of cause and effect. Perhaps most importantly, these soldiers performed better on subsequent missions!

In addition to the importance of comparison and contrast, one other key psychological phenomenon makes the cliche problematic. When we examine the causes of failure, we experience the fundamental attribution error. When others fail, we look inside of them, and we blame their lack of knowledge, experience, and the like. However, when we fail, we tend to look outside of ourselves. We blame "unexpected external forces" or some other cause not of our own doing. The fundamental attribution error prevents us from learning effectively from our failures.

So, let's stop with the cliche! We learn by comparing our successes and failures!

Thursday, March 22, 2012

HP announced yesterday that it will combine its personal computer and printer units. The firm tried this once before, under CEO Carly Fiorina. Her successor reversed course just a short time later. What are the benefits of such a move? HP believes that they can achieve substantial cost savings from such moves. Perhaps they also can coordinate their sales and distribution strategies more effectively.
What are the risks? First, this move may make it more difficult/costly to divest the PC unit in the future, if the firm decides that it really can't make a go of it for the long haul in PCs. Second, investors may lose some much desired visibility into segment financial performance. If HP reports PC and printer financials combined, then printer earnings may mask weakness in the PC unit. Lack of transparency may cause investors to discount their valuation of the firm.

Tuesday, March 20, 2012

I'm quite intrigued by the announcement that Amazon is acquiring Kiva Systems. Kiva makes bright orange robots that operate in distribution centers to fulfill orders. Why does Amazon want to vertically integrate in this way? Clearly, distribution is a key capability at Amazon. Thus, they may be acquiring key knowledge and competences. On the other hand, why lock yourself into this particular warehouse solution? Will Kiva truly be better off within Amazon as opposed to being independent, or part of a logistics firm? Moreover, how will other retailers react to the fact that they will be buying the robots from a direct competitor? The deal raises many questions. Stay tuned as we should hear much more about Amazon's rationale for the deal in the days ahead.

Monday, March 19, 2012

Wharton management professor Jennifer Mueller and Wharton lecturer Julia Minson have published a fascinating new paper titled, "The Cost of Collaboration: Why Joint Decision-making Exacerbates Rejection of Outside Information."
Minson and Mueller compared how pairs of people responded to outside input as opposed to individuals working alone. They found that people working in pairs exhibited a greater tendency to reject outside input. The individuals and the pairs gave initial responses to a series of questions such as, "What percentage of members of Congress are Catholic?" Then, they had an opportunity to revise their estimate based on outside input. As expected, the pairs demonstrated higher accuracy during their initial responses (two heads are better than one). However, the discrepancy in accuracy disappeared after the opportunity to incorporate outside input. Why? The individuals working alone tended to adjust their responses more so than the pairs.

What's going on here? A number of factors surely play a role in this phenomenon. However, I think the general point is that teams have a tendency to be inward-focused at times. An in-group vs. out-group dynamic emerges, whereby you exhibit an affinity for your fellow group members, and you tend to reject, marginalize, or discriminate against those in the out-group (such as the outsider providing input to the pair). The group members also may spend time bolstering each others' confidence in the judgment at which they arrive, and that makes it difficult to alter that judgment in the future.

I recall one fascinating example of this phenomenon in action during a leadership development workshop. My colleague Amy Edmondson was conducting a team exercise called the Electric Maze. She invited a group of individuals on stage to work on the exercise. After the group had a chance to plot their strategy for a few minutes, the audience members had an opportunity to offer the group advice before it started the exercise. The group barely listened to the audience. They had become so fixated on the strategy that they had begun to concoct that they were not receptive to outside advice. The amazing thing is that the group had only been plotting its strategy for a few minutes when the outsiders chimed in with their input. Yet, the group dismissed the outside input. The team already had become insular!

Thursday, March 15, 2012

As many of my readers know, I am often skeptical of diversification strategies. I prefer focused firms that place their undivided attention on one business. However, I do believe that many investors and analysts react in a knee-jerk fashion when a firm's share price lags - they quickly recommend a break-up or divestiture. They think this move will magically increase the share price. While such moves often do increase shareholder value, they don't always create value.

Recently, some investors and analysts have called for Pepsi to divest Frito Lay. However, it does not appear to me that Pepsi's recent struggles are primarily due to a poor diversification strategy. I don't see Pepsi investing in unrelated businesses with no synergies. I see them struggling to deal with the changing beverage market, and I see them failing to maintain the strength of their core brands whose growth has stalled. Still, I don't think divesting Frito Lay magically solves those problems. Breakup is not an elixir. For investors and analysts, it's an easy, ready made solution... While it may add value in many cases, it shouldn't be viewed as the answer in every case where stock price slumps.

Wednesday, March 14, 2012

Fortune writer Jennifer Alsever has written an article about a clear new trend in the job market. Increasingly, companies don't simply want to interview candidates. They want to see them in action! In other words, firms want to see potential hires make a presentation, conduct some research, perform analysis on some data, or evaluate a product or service. Applicants need to demonstrate that they can execute. Moreover, they have to show that they can think on their fee, communicate clearly, and think critically. Alsever offers some good advice for applicants given this trend. Naturally, she recommends doing your homework. She also points out that firms aren't just evaluating the answers you provide. They are examining the kinds of questions you ask. They want to know how you think.

Arijit Chatterjee and Donald C. Hambrick said in a 2006 paper
that narcissism among chief executives encouraged more volatile company
performance. In a study of 111 chief executives in the technology
industry, the authors found that indicators of narcissism correlated not
only with company performance but also with the pursuit of deals. The study was criticized for overstating the power a chief executive
has over a company. But additional research has shown that a top
executive’s personality can have powerful effects on how a corporation
is operated. For example, Henrik Cronqvist, Anil K. Makhija and Scott E. Yonker found that the level of debt
for a company was related to how much a chief executive was willing to
borrow to buy a house. Matthew Cain and Stephen B. McKeon looked at chief executives
who had pilot licenses. Flying small planes is viewed as thrill-seeking
behavior. Professors Cain and McKeon found that chief executives with
pilot licenses were more prone to engage in acquisitions, with the
theory that takeovers are risky, yet exciting ventures.

I think the latter two studies are truly fascinating. One of our Bryant honors students (now finishing his MBA at Duke) completed a senior thesis examining similar relationships. He analyzed people who enjoyed sky-diving , and likewise, he found that those individuals tended to exhibit riskier choices in other parts of their lives as well. What is the implication of such studies? I believe it suggest that we should be taking a look at signals that suggest an executive may have a high propensity to take risk or strive for the public spotlight, and we should search broadly for those signals. However, we have to be careful. These studies demonstrate a pattern that emerges, on average, from the data. That does not mean every thrill-seeker will be advocating risky corporate acquisitions.

These studies do make a broader point as well about acquisitions. They re-emphasize the fact that many CEOs do deals for reasons beyond the impact on shareholder value. Many individuals find deal-making to be exciting and satisfying. They derive much personal utility from such deals. However, that "thrill-seeking" may be to the detriment of shareholders, customers, and employees.

Monday, March 12, 2012

Have you ever become angry when you paid full price for an item, and then learned that the company had put that item on sale shortly after your purchased it? We have all been there. Now scholars have examined the long term effects of such deep discounting.

Kellogg School of Management Professor Eric T. Anderson and MIT Professor Duncan I. Simester conducted a study to examine whether such deep discounting angered customers, particularly the company's best customers. Beyond creating anger, they wanted to know if that negative emotional reaction affected long term sales. Here's what the researchers did, according to Kellogg Insights:

"Anderson and Simester worked with a retailer
that specialized in selling durable goods, like software, electronics,
apparel, or books. In the past, the retailer had typically kept prices
high but frequently offered small discounts and the occasional deep
discount. Anderson and Simester worked with them to create test catalogs
to determine whether and which customers would be antagonized by price
changes. (Most of the retailer’s customers purchased via catalog at the
time of the study.) The two types of test catalog were mailed according
to the regular schedule and included 86 products, 36 of which were
discounted by varying amounts depending on which test catalog people
received. The deep-discount version offered the 36 items at an average
of 62 percent off, while the shallow-discount version offered an average
discount of 34 percent."

The scholars studied customers who paid full price for items and then received a catalog offering steep discounts. “When you look at this segment of customers, what
you see is that a substantial portion just stop buying,” Anderson said.
“We call this the boycott effect.” Customers offered the steep discounts placed substantially fewer new orders than those people who were offered smaller discounts! Customers who received the steep discount catalog placed 14.8% fewer subsequent orders than those who received the
shallow-discount version. Moreover, many people who were offered subsequent deep discounts simply ordered nothing at all in the months that followed. It turns out the "boycott effect" lasted for awhile. The scholars found that customers who reacted poorly to the steep discounts tended to buy less items from that retailer for the next twenty months!

Friday, March 09, 2012

Fortune reports about a new study conducted by Professor Timothy Judge of the University of Notre
Dame's Mendoza College of Business. Judge examined 717 highly ambitious individuals born in the early 1900s. They went to top schools, embarked on high-status careers, and made a great deal of money.

He compared them to a control group of people who did not exhibit the same level of ambition. Judge found that, "Despite their many accomplishments,
ambitious people are only slightly happier than their less-ambitious
counterparts, and they actually live somewhat shorter lives."

Hmmm... food for thought indeed. When we strive to accomplish great things, do we sometimes make lifestyle and health choices that may be detrimental to us?

Tuesday, March 06, 2012

Nick Morgan at Forbes points us to a terrific TEDx Houston talk by Professor Brené Brown. As Morgan writes, "Audiences long for presenters to be real with them, and just have a
conversation. Sure, they want a focused, smart conversation, not a
rambling, pointless one like so many real conversations. But they want
an authentic connection with their speakers, and the way to achieve
that is with a conversation."

Morgan goes on to explain that many presenters fear a conversation with their audience. They want to control the situation. Professors suffer from this same desire for control. As a result, they sometimes shy away from interactive learning processes, because they are not sure how they will handle unexpected conversations and questions.

I encourage you to read Morgan's article and watch Professor Brown's terrific talk:

Monday, March 05, 2012

Adam Lashinsky's article has published an article on Fortune.com titled, "3 things any company can learn from Apple." (drawn from his book to the left) I especially love the first point. My students know that I preach this point about "saying no" all the time! Here's the excerpt:

Say no more often. Steve Jobs was fond of saying that
saying no was harder -- and more important -- than saying yes. Apple
said no to making personal digital assistants, in the 90s that is. It
said no for years to making a telephone-- until it said yes. Apple
refused to focus on selling to businesses. It wouldn't put a USB port on
the first iPad. And so on. While not every company can achieve Apple's
level of Zen by rejecting seemingly good business opportunities, there
isn't a company out there that wouldn't benefit by more rigorously
asking itself: "Have we absolutely satisfied ourselves that we have said
yes for the right reasons?" How many companies pursue revenue
opportunities that any new recruit knows the company is doing to make
money rather than delight customers. (An example: Jobs ridiculed the PC
industry for years for the margin-boosting "crapware" that comes loaded
on a PC. The crap remains.) It takes real courage to say no. But it's
not like top executives aren't being compensated for brave action.

I would like to make a larger point though. I think leaders need to be very careful about trying to draw lessons from Apple and apply them to their businesses. First of all, Apple is a very unique animal, unlike most other firms in terms of its fundamental DNA. Secondly, we must remember that competitive advantage derives from fit among strategy, structure, systems, culture, and people. It doesn't come from a silver bullet - a single core competence, one particular strategic choice, a specific business principle or value. Emulating Apple in one or two dimensions may not bring much advantage to a firm, if that choice doesn't align well with everything else a company does. Changing a company for the better requires systemic change, not just a tweak here or there that results from a benchmarking exercise of a stellar firm.

Thursday, March 01, 2012

Scholars KC Diwas, Bradley Staats, and Francesa Gino have conducted a new study about how we learn and improve (or fail to do so). They examined Minimally Invasive Cardiac Surgery procedures. Their research shows that individuals (cardiac surgeons in this case) learn more from their own success than the success of others. Moreover, they learn more from others' failures than others' successes. What explains these findings? The scholars argue that we attribute our own success as well as others' failures to internal factors rather than external conditions. When we succeed, we attribute it to our own effort and capabilities. When we fail, we often blame "unexpected external factors or pressures." On the other hand, when others fail, we tend to attribute the outcome to some deficiency on the part of that person (poor effort, planning, skills, etc.). Finally, the study demonstrated that, "Individuals may be more open to reflect on their own failures and learn
from them when they have greater experience with success."

Michael Roberto

The Great Courses

About Me

I am the Trustee Professor of Management at Bryant University in Smithfield, RI. I joined the faculty after serving for six years on the faculty at Harvard Business School.

My research, teaching, and consulting focuses on leadership, with a particular emphasis on decision-making and teams. I have published two books based upon my research: Why Great Leaders Don't Take Yes For An Answer (2nd edition to be released in May 2013), and Know What You Don't Know (2009).